A little background here
Selected by /r/investing, we are going to do some analysis of this stock.
Medtronic is a large medical device development company. They’ve grown through mergers and acquisitions and develop devices for a variety of uses from cardiac issues to diabetes, and much more. They have 35,000 patents.
Revenue and profit have grown significantly in the last few years, but I suspect most of that isn’t real growth, it’s just the addition of revenue and profits of companies they merged with. Maybe someone can add some perspective here. It seems they target smaller companies and startups and then work to get those companies to market. They acquired Covidien in 2015 for about 50 billion. They were a public company with a market cap of 50 billion. They had 10 billion in revenue, so hardly a startup. Wikipedia lists their other acquisitions as well, it looks like Covidien is the exception not the norm. I’ve only looked at a couple but they were much smaller.
PE of 28, which is reasonable in the current environment. Dividend at 2%.
They are the 36th largest company in the S&P 500, right under Walmart. Certainly, blue chip status.
It’s hard to imagine their industry will do anything but grow. They provide products that save lives and/or improve quality of life. As technology advances the industry will develop new and innovative devices. Smaller devices that can do more. Medtronic with their 2 billion dollar R&D budget might be at the forefront of these developments, but if not, they’ll probably try and acquire anyone who is. There is some debate over whether or not M&A tend to create value.
Here their CEO describes their their acquisition strategy. Seems reasonable. Had a look at his twitter and interviews. Seems like a smart guy. The strategy is to buy early stage companies, then help them bring their products to market. He also talks about how important it is to make the devices easy to use, easy to install, and help train doctors to use them appropriately. Use of pacemakers in Indian amongst people that can afford them is very low, because the infrastructure to use them doesn’t exist. He says he could give away pace makers and they would be used for scrap metal. You need to train the doctors. The technology alone doesn’t create any value. So, part of their business is it to create the distribution network.
Pro tip, if you watch this or other interviews, crank the playback speed up to 1.5x. Its slow enough that you can still understand, just saves you some time. This one starts a bit slow, but is good too.
The need for further improvement in healthcare in insatiable. People will always want to live longer, get cured faster, and have less pain.
A topic he focuses on is value based healthcare. This involves measuring the outcome of treatment in the long term and making sure it is better when using their products. Their products should provide enough value to justify their cost. That needs to be studied better. He cares a lot that their technology actually changes outcomes. He doesn’t want to sell snake oil. He also wants to make sure the ongoing care isn’t so expensive that it negates the value their products bring.
Thinking about a company to buy and hold for a few decades, it seems like you could do a lot worse. I’m not convinced it’s better than a total market index fund, but that’s certainly the direction I’m leaning.
Submitted April 17, 2017 at 10:11AM by jatjqtjat http://ift.tt/2oOZ2L0
